Posted by: michaeldavidpower | May 3, 2010

The Chinese African Partnership – Evolving, and unusually

For most of Africa, the symbiotic relationship that the continent is developing with Asia – and especially with China and even India – could not come at a better time. Just as a new generation of post-post colonial leaders is reinvigorating the Continent’s political ranks and so the governance of many African nations, so too a new foreign trade relationship, this time a far more evenly balanced one with Asia, is reinvigorating the economic relevance of the African Continent as well. If these two trends can work hand-in-hand, Africa’s future will be a lot brighter. And, for the first time in over 500 years, since Vasco da Gama rounded the Cape of Good Hope and gathered up the African Continent into the European sphere of influence so drawing it away from Asia, the West may well be only marginally involved in defining that brighter future.

Africa’s road to political independence began when Nkrumah declared Ghana “free forever” in 1957. But economic independence was not so easily won with much of the Continent remaining trapped in a quasi-colonial framework, one based first on trade with the former colonial powers and then more recently on aid received from them, usually via the multi-lateral agencies closely associated with the West: the IMF and World Bank.

In recent years, this structure has started to break down as an industrializing, urbanizing, resource-hungry Asia has recognized new value in a region that had become marginalized in Western business decisions and a backwater in the Western mind, best renowned for famine, war and photogenic opportunities for Western celebrities to be seen to be “doing good”.  Africa never liked this reputation – who would? – but for a time, there was little alternative open to Africa but to squeeze the Aid Cow for whatever milk it would yield.

Matters are now changing and changing fast, so much so that the cow and its herdsmen are feeling somewhat neglected. Asia wants to trade with Africa, pure and simple. And if trading with Africa also requires rebuilding the Continent’s infrastructure so as to facilitate the extraction of resources, so be it; Asia is often prepared to finance the construction of more integrated supply chains in Africa too.

Many in the West – perhaps miffed at Africa’s ‘fickleness’ and its willingness to ‘flirt with new friends’ – have been quick to suggest that Africa is replacing one colonial master with another. And, truth to tell, the relationship between Africa and especially China was not an even one at the outset. But, as Zambia and Angola can testify, rebalancing this relationship to one that is more mutually advantageous is easily done. And, to their credit, the Chinese – and now the Indians and even the Brazilians and the Russians – have accommodated these revisions on the basis that they appear to be building longer term relationships based on sounder footings as a result.

Other African countries, newer to the dance with China, have built their African partnerships on these second and third generation model revisions. And, given the competition that China is now experiencing from especially other BRIC nations and even a reawakened West now aware that its privileged place in Africa’s trade network is rapidly being disintermediated, Africa’s oil and mineral rich nations have gone from being shunned wallflowers to sought after Cinderellas at the global economic ball.

Of course the break with the old and engagement with the new has not been a smooth one – old habits die hard as do old relationships. Western oil companies in particular often have African friends in high places such as Gabon and changing this guard is easier said than done.

One of the less remarked upon redoubts of the West in Africa has been its hold on African policy making, especially with regards to macro-economic management: best practice in Africa is still taken as being that which is done in the West, notwithstanding the fiscal, monetary and financial messes the likes of the US and UK have found themselves in during the past decade or so.

Still the tenets of the so-called Washington Consensus – hypocritically often loudly preached by but barely practiced within the West as recent behaviour can testify – are often deeply rooted within the Treasuries and Central Banks of Africa. Alternative ideas, whether they come from Chile or China, are given short-shrift regardless of their merits and possible appropriateness to the African macroeconomic challenge.

In view of this, it is hard not to conclude that as Africa has, in recent years, finally loosened the silken cords of trade dependence on the West having broken the political chains in the 1950s, 1960s and 1970s, the next challenge must be to let go of the woolly economic thinking still imported from the West, thinking that was rarely appropriate for Africa in the first place and, after all, may not really have worked for the West either.

Meanwhile Africa plays the Dragon Variant in the Great Game of Chess being played for the world’s resources

Zou chuqu zhan lue is not a phrase you will hear very often on the streets of Luanda, Lusaka or Lubumbashi. But it is a phrase that is arguably changing the economic face of Africa more than any other since the colonial era, more influential even than the term “Washington Consensus”. Meaning “going out strategy”, zou chuqu zhan lue is the Mandarin expression that defines the economic policy increasingly governing China’s engagement with the world’s resource-rich regions. As such, Africa has been one of the prime beneficiaries – or, depending upon your view point, “victims” – of this Eastern approach.

Its central feature is encouraging China’s leading resource-oriented companies to invest in securing the ever-expanding global supply chains of natural resources upon which a fast growing China is, every year, becoming more and more dependent. That it can be funded out of China’s foreign exchange reserve mountain also means it potentially solves another challenge faced by China – how to recycle $2.5 trillion of mostly accumulated trade surpluses more constructively than merely parking them in an increasingly risky US bond market.

The likes of Chinalco, PetroChina, Shenhua Coal and MinMetals are but the better known examples of a host of Chinese companies that are scouring the earth for resource companies to buy or mining and energy projects to co-finance. Though there is no blank cheque that is underwriting their acquisition costs, they seem to have little difficulty in securing funding when the ‘right’ project comes along. That Chinese buyers are usually the acquirers most likely to pay the top-most dollar in any auction to secure a company or project up for grabs suggests that justifying the price to those holding the purse strings back in China is not an especially demanding task. And, given that 95% of all foreign direct investment flowing out of China in 2009 went into natural resources, it suggests that zou chuqu zhan lue as a commercial policy is being given the highest of priorities by Beijing.

The Southern Hemisphere in particular has been on the receiving end of this strategy though companies and projects from Kazakhstan to Canada and Mongolia to Iraq have also benefitted.  In Latin America, Peru’s copper and zinc industries and Argentina’s oil and gas sectors have thus far been principal targets though, had Brazil allowed it, the Chinese would have invested even more heavily in their emerging oil sector than they already have. Australia has arguably been the country most targeted thus far. But the region whose economic prospects are most likely to benefit from this new wave of investment is Africa.

For many countries in the continent, China is already their most important trade partner with Angola, for instance, now China’s leading supplier of imported oil, ahead of even Saudi Arabia. What makes China’s involvement in Africa so noticeable and – for some at least – so controversial has been its willingness to deal with regimes like that of Sudan, regimes that have incurred the wrath of Western human rights organizations. Furthermore Chinese involvement has gone far beyond that of merely being a big buyer of oil or minerals: frequently they have got heavily involved in repairing or even building anew the infrastructure required to extract these resources, from road to railways, from power stations to ports.

To some extent, the opprobrium that Chinese interests have attracted has been little more than sour grapes emanating from Western commercial interests finding themselves outmanoeuvred in an increasingly competitive environment. Recent events in the emerging oil sectors of Ghana and Uganda would fall into this category.

The geo-economic chess game that is now being played out across the African continent is reminiscent of the Great Game played between Britain and Russia in Central Asia during the 19th Century as the Lion and the Bear sought to bring that region into their sphere of influence thus controlling its trade and resources. But what is happening in Africa today is, in one profoundly important respect, very different from that chess game: those who own the chess-board, today as sovereign and independent nations, are also playing the defence.

No doubt there remains a degree of lop-sidedness in some of the relationships being forged between China and the resource producers of Africa. But as other players – Brazil, India, Russia – enter the African game or – in the case of Western interests intent on regaining their previous privileged positions – re-enter it, the balance of economic power is slowing but decisively moving in favour of the defence and against the attack.

This is most apparent in the Sino-African relationship; though, over the past decade, it has not been without its misunderstandings, it has materially improved in recent years, and mostly in favour of the resource sellers in Africa and at the cost of the resource buyers, especially those in China. This is arguably most apparent in Angola and Zambia.

The Dragon Variation is one of the most famous and effective manifestations of the Sicilian Defence, itself one of the most powerful of all chess openings. The Black players of Africa have, in recent years, developed their own rather successful Dragon Variation in response to the zou chuqu zhan lue moves now being played by the Chinese in the geo-economic chess-game that the scramble for the world’s resources has become.

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